Cisco Shares Jump on Dividend Hike, Lifting Network-Gear Makers

Shares of Cisco Systems Inc. jumped 9.6 percent on Thursday as a dividend hike and share buyback plan overshadowed comments that business conditions in Europe would not improve anytime soon for the network equipment maker.

Cisco joins a league of technology companies such as Apple Inc., Intel Corp., Dell Inc. and Hewlett Packard Co. that have been returning more cash to shareholders over the past few quarters.

The company's shares, which have recovered some of their losses after they fell 11 percent on weak third-quarter results in May, rose to $19.02 in trading on the Nasdaq on Thursday.

The stock used to trade above $80 before the dotcom collapse but have traded at over $25 as recently April 2010 before its CEO John Chambers admitted that the company had "lost its way," as it struggled with a big and unwieldy business.

Several brokerages, including Barclays Capital, Citi Investment Research and Raymond James, raised their price targets on the stock. The mean price target on the company's shares is $21.01, according to Thomson Reuters StarMine.

Shares of rival network equipment maker Juniper Networks Inc. rose 0.8 percent to $18.59 on the New York Stock Exchange, while those of other companies in the sector including F5 Networks Inc., Riverbed Technology Inc. and Aruba Networks Inc. all rose on the Nasdaq.

Cisco said on Wednesday it will raise its quarterly dividend by 75 percent to 14 cents per share after reporting fourth-quarter revenue largely in line with analysts' estimates. It also said it bought back $1.8 billion worth of shares in the quarter.

"The 75 percent increase in dividend and commitment to return at least 50 percent of free cash flow in dividend and buybacks was not expected given high offshore cash balance and should be rightly viewed as sign of overall confidence on part of Cisco," said Citi Investment Research analyst Kevin Dennean.

Barclays and BMO Capital Markets both raised their price targets on the stock by $1 to $22. Citi raised its price target by $2 to $21.

BMO analyst Tim Long said he expects the buybacks to continue, but at a slower pace than in the fourth quarter.

Robert W. Baird & Co analyst Jayson Noland said though the stock will react favorably now, shares will not move up too much anytime soon given the weak economy.

Noland, a five star-rated analyst for the accuracy of his earnings estimates on Cisco according to StarMine, raised his price target by $2 to $21.

U.S. TURNAROUND

A faltering U.S. recovery and weakness in Europe have hit network equipment makers over the past year as their biggest customers — telecom service providers — cut spending and delayed purchases of new equipment.

Cisco seemed to have little hope on Wednesday that the dire economic conditions in Europe would come to an end any time soon but said it expects spending at customer AT&T Inc. to increase in the second half of 2012.

Analysts believe the growth in the company's U.S. business will offset the weakness in Europe over the next several quarters. Revenue from the Americas rose 7 percent in the fourth quarter.

"There are clear signs of a turnaround in the U.S. business across verticals, and this more than offset the continued weakness in Europe," BMO's Long wrote in a note to clients.